Paul Tucker, the Bank’s deputy governor for financial stability, raised the possibility in front of MPs after expressing concerns that current policies are not “reaching as far into the SME [small and medium sized enterprises] sector as we would like”.
He stressed that he was speaking for himself but Charlie Bean, the Bank’s deputy governor for monetary policy, confirmed that the idea had been discussed at this month’s rate-setting meeting.
Negative interest rates would mean depositors, such as high street lenders, would have to pay the central bank to place their money with it.
The Bank has talked about cutting rates below their current record low of 0.5pc in the past, but has ruled out the policy on every occasion due to the potentially crippling damage it would do Britain’s building societies, which are more dependant on deposit income than banks.
Sir Mervyn King, speaking in Japan today, warned that negative real bond yields in Britain were not consistent with a sustainable economic recovery and that low interest rates globally were unsustainable.
However, Mr Tucker told MPs on the Treasury Select Committe that a way might be found around the problems of cutting interest rates.
He said: “I hope that we will think about the constraints of setting negative interest rates. This would be an extraordinary thing to do and it needs to be thought through carefully.”
The Bank is believed to be considering ways of cutting the rate paid on banks’ deposits without cutting the official base rate.
As the two are technically the same at the moment, the arrangement would require a change in the way the Bank operates.
Although under discussion, negative interest rates look highly unlikely as senior bank figures said it would be very difficult to discriminate between banks and building societies.
Addressing the Treasury Select Committee, Mr Tucker raised the idea as a way of improving credit conditions for small businesses, which he described as the lifeblood of the economy.
He suggested extending the Funding for Lending cheap credit scheme to non-bank lenders and for the Bank to create new policies to ensure small businesses had sufficient access to vital working capital.
Mr Tucker also stressed that “nobody on this [rate-setting] committee thinks that QE [quantitative easing] has reached the end of the road”.
telegraph.co.uk
He stressed that he was speaking for himself but Charlie Bean, the Bank’s deputy governor for monetary policy, confirmed that the idea had been discussed at this month’s rate-setting meeting.
Negative interest rates would mean depositors, such as high street lenders, would have to pay the central bank to place their money with it.
The Bank has talked about cutting rates below their current record low of 0.5pc in the past, but has ruled out the policy on every occasion due to the potentially crippling damage it would do Britain’s building societies, which are more dependant on deposit income than banks.
Sir Mervyn King, speaking in Japan today, warned that negative real bond yields in Britain were not consistent with a sustainable economic recovery and that low interest rates globally were unsustainable.
However, Mr Tucker told MPs on the Treasury Select Committe that a way might be found around the problems of cutting interest rates.
He said: “I hope that we will think about the constraints of setting negative interest rates. This would be an extraordinary thing to do and it needs to be thought through carefully.”
The Bank is believed to be considering ways of cutting the rate paid on banks’ deposits without cutting the official base rate.
As the two are technically the same at the moment, the arrangement would require a change in the way the Bank operates.
Although under discussion, negative interest rates look highly unlikely as senior bank figures said it would be very difficult to discriminate between banks and building societies.
Addressing the Treasury Select Committee, Mr Tucker raised the idea as a way of improving credit conditions for small businesses, which he described as the lifeblood of the economy.
He suggested extending the Funding for Lending cheap credit scheme to non-bank lenders and for the Bank to create new policies to ensure small businesses had sufficient access to vital working capital.
Mr Tucker also stressed that “nobody on this [rate-setting] committee thinks that QE [quantitative easing] has reached the end of the road”.
telegraph.co.uk
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